CAD falls to 1.2% of GDP in Q2 on plunging gold imports

Business

Lower gold imports have hugely improved the current account deficit to 1.2 per cent of GDP in the second quarter of FY14. With the deficit looking far better and an uptick in GDP growth for the second quarter, the government struck a buoyant note on Monday, claiming FY14 will end with a growth rate of 5 per cent.

Reserve Bank of India data showed CAD has eased to 1.2 per cent of GDP or $5.2 billion for the quarter ended September 2013 against a decade-high of 5 per cent, or $21 billion in the same period last year. The improvement is based on sharp cut back in gold imports that has plunged to $3.9 billion in the September quarter compared with a massive $16.4 billion in the first quarter of 2013-14 and $11.1 billion in the second quarter of last year.

A finance ministry release on Tuesday noted that the performance of the economy in the second quarter "is broadly on expected lines. With the recent improvements in some important sectors like manufacturing, better performance of exports and with the measures taken by the government, we expect growth for the year to be 5 per cent". Data released by the Central Statistics Office on Friday showed that GDP growth for the second quarter stood at 4.8 per cent.

"We expect the CAD to shrink to 2.7 per cent of GDP in FY14. India's large CAD was one of the key vulnerabilities which precipitated a large outflow of capital and sharp rupee depreciation in 2013. While, we were expecting the CAD to improve due to better exports and weak domestic demand, the shrinking has been even larger than expected," Goldman Sachs wrote in a report.

The rupee, which closed 13 paise higher at 62.31 against the dollar on Monday is expected to gain further in the wake of the fall in CAD levels.

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